<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[Fee required]
For the period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[Fee required]
For the Transition period from _________________ to ________________
Commission File Number 33-16973
NET 1 L.P.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3421566
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
C/O THE LCP GROUP
355 LEXINGTON AVENUE
NEW YORK, NY 10017
---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 692-7200
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interests
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x . No .
--- ---
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant.
Not Applicable.
There is no active public market for the units of limited partnership interests
issued by the Registrant.
<PAGE> 2
PART 1. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED BALANCE SHEETS
March 31, 1997 (Unaudited) and December 31, 1996
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Real estate, at cost
Buildings $ 15,725,091 $ 15,725,091
Land 7,145,912 7,145,912
------------ ------------
22,871,003 22,871,003
Less: accumulated depreciation 2,394,535 2,296,399
------------ ------------
20,476,468 20,574,604
Cash and cash equivalents 2,197,551 2,123,011
Rent receivable 336,380 315,325
Other assets 446,598 165,963
------------ ------------
$ 23,456,997 $ 23,178,903
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Mortgage notes payable $ 3,515,310 $ 3,551,850
Accrued interest payable 31,242 31,631
Accounts payable and other liabilities 157,866 87,007
------------ ------------
3,704,418 3,670,488
------------ ------------
Partners' capital (deficit):
General Partner (175,359) (180,243)
Limited Partners ($1,000 per Unit,
50,000 Units authorized, 30,772
Units issued and outstanding) 19,927,938 19,688,658
------------ ------------
Total partners' capital 19,752,579 19,508,415
------------ ------------
$ 23,456,997 $ 23,178,903
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 3
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF INCOME
Quarters Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, March 31,
1997 1996
-------- ------
<S> <C> <C>
Revenues:
Rental $899,786 $872,288
Interest and other 27,713 13,134
-------- --------
927,499 885,422
-------- --------
Expenses:
Interest 94,118 98,524
Depreciation 98,136 98,136
General, administrative, and other 98,267 58,761
-------- --------
290,521 255,421
-------- --------
Net income $636,978 $630,001
======== ========
Net income per Unit of limited
partnership interest $ 20.29 $ 20.06
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 4
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarters Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, March 31,
1997 1996
------ -----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 636,978 $ 630,001
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 98,136 98,136
Decrease in accrued interest payable (389) (343)
Increase in rent receivable (21,055) (4,137)
(Increase) decrease in other assets (280,962) 1,169
Increase in accounts payable
and other liabilities 70,859 2,588
--------- ---------
Total adjustments (133,411) 97,413
--------- ---------
Net cash provided by operating activities 503,567 727,414
--------- ---------
Cash flows from investing activities:
Principal payments received on note 327 401
--------- ---------
Cash flows from financing activities:
Principal payments on mortgage notes (36,540) (32,180)
Cash distributions to partners (392,814) (392,814)
--------- ---------
Net cash used in financing activities (429,354) (424,994)
--------- ---------
Net increase in cash and cash equivalents 74,540 302,821
Cash and cash equivalents at beginning of period 2,123,011 1,816,179
--------- ---------
Cash and cash equivalents at end of period $ 2,197,551 $ 2,119,000
=========== ===========
Supplemental cash flow information:
Cash paid during the period for interest $ 94,507 $ 98,867
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 5
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
1. The Partnership and Basis of Presentation
-----------------------------------------
Net 1 L.P. (the "Partnership") was formed as a limited partnership on
August 25, 1987 under the laws of the State of Delaware to invest in
real estate or interests therein to be net leased to corporations or
other entities.
As of March 31, 1997, the Partnership has a total of 30,772 Units
issued and outstanding held by approximately 1,720 limited partners.
The unaudited financial statements reflect all adjustments that are, in
the opinion of the General Partner, necessary to a fair statement of
the results for the interim period presented. For a more complete
understanding of the Partnership's financial position and accounting
policies, reference is made to the financial statements previously
filed with the Securities and Exchange Commission with the
Partnership's Annual Report on Form 10-K for the year ended December
31, 1996.
2. Summary of Significant Accounting Policies
------------------------------------------
Real estate is carried at cost less accumulated depreciation. On
January 1, 1996, the Partnership adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." This SFAS establishes the recognition and measurement
criteria for impairment losses on long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. This SFAS requires that an impairment
loss be recognized when events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
For purposes of the statement of cash flows, the Partnership considers
all highly liquid instruments to be cash equivalents. The balance sheet
caption cash and cash equivalents includes $2.162 million of money
market instruments at March 31, 1997.
The leases relating to the properties are operating leases in
accordance with SFAS 13. Rental revenue is recognized on a
straight-line basis over the minimum lease terms. At March 31, 1997,
the Partnership's rent receivable primarily consists of amounts for the
excess of rental revenues recognized on a straight-line basis over the
rents' collectible under the leases.
The net income per Unit of limited partnership interest was calculated
by using the actual number of Units outstanding for each period and
allocating the income attributable for that period to the Limited
Partners. The weighted average number of Units outstanding was 30,772
during each of the quarters ended March 31, 1997 and 1996.
Certain amounts included in the prior years' financial statements have
been reclassified to conform with the current year's presentation.
<PAGE> 6
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Continued
---------
The Financial Accounting Standards Board's Statement of Financial
Accounting Standards ("SFAS") No. 107, "Disclosures About Fair Value of
Financial Instruments", defines fair value of a financial instrument as
the amount at which the instrument could be exchanged at a current
transaction between willing parties. The Partnership's cash, mortgage
notes payable, and accounts payable and other liabilities are carried
at cost, which approximates fair value.
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
3. The Partnership Agreement
-------------------------
For financial statement reporting purposes all items of income are
allocated in the same proportion as distributions of distributable
cash.
As of March 31, 1997, the Partnership has made cumulative cash
distributions to the Limited Partners totaling $19,516,708. The unpaid
cumulative preferred return at March 31, 1997 totaled $9,472,150
($310.45 to $304.60 per Unit).
On April 30, 1997, the cumulative preferred return that was unpaid at
March 31, 1997 was reduced by a cash distribution for the quarter ended
March 31, 1997 totaling $384,958 or $12.51 per Unit to the Limited
Partners and $7,856 to the General Partner.
4. Mortgage Notes Payable
----------------------
Principal paydowns of the mortgage notes payable for the succeeding
five years are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
1997 (9 months) $ 148,232
1998 218,767
1999 245,657
2000 275,898
2001 309,914
2002 348,182
=======
</TABLE>
<PAGE> 7
NET 1 L.P. AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Leases
------
Minimum total annual future rental payments receivable under the
noncancelable operating leases for the properties as of March 31, 1997,
follow:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
1997 (9 months) $ 1,799,607
1998 2,431,921
1999 2,477,344
2000 2,477,344
2001 2,478,597
2002 2,492,370
Thereafter 14,394,915
-------------
$ 28,552,098
=============
</TABLE>
The leases are triple net leases requiring the lessees to pay all
taxes, insurance, maintenance, and all other similar charges and
expenses relating to the properties and their use and occupancy.
6. Related Party Transactions
--------------------------
Leased Properties Management, Inc., an affiliate of the General
Partner, is entitled to receive a fee for managing the Partnership's
properties in the amount of 1% of gross annual rental receipts (or a
greater amount in certain circumstances). As of March 31, 1997, a
property management fee of $8,787 had been paid or accrued to Leased
Properties Management, Inc.
7. Subsequent Events
-----------------
On April 21, 1997, the Partnership entered into an agreement to
purchase a property located in Cameron County, Texas. The property is
being leased to Wal-mart Stores, Inc. The purchase price is $3.525
million which includes the assumption of a note from the seller in the
original principal amount of approximately $2.4 million.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
As of March 31, 1997, the Partnership has made cumulative cash distributions to
the Limited Partners totaling $19,516,708. The unpaid cumulative preferred
return at March 31, 1997 totaled $9,472,150 (see note 3 of Notes to Consolidated
Financial Statements).
On April 21, 1997, the Partnership entered into an agreement to purchase a
property located in Cameron County, Texas. The property is being leased to
Wal-mart Stores, Inc. The purchase price is $3.525 million which includes the
assumption of a note from the seller in the original principal amount of
approximately $2.4 million.
The Partnership attempts to maintain a working capital reserve in an amount
equal to 3% of the gross proceeds of its offering, an amount that is anticipated
to be sufficient to satisfy liquidity requirements. Liquidity could be adversely
affected by unanticipated costs, particularly costs relating to the vacancy of
properties, tenants experiencing financial difficulties, and greater than
anticipated operating expenses. To the extent that such working capital reserves
are insufficient to satisfy the cost requirements of the Partnership, additional
funds may be obtained through short-term or permanent loans or by reducing
distributions to limited partners.
There are no material restrictions (other than the debt service requirements
under the mortgage notes) upon the Partnership's present or future ability to
make distributions in accordance with the provisions of its Partnership
Agreement.
Results of Operations
- ---------------------
The results of operations for the three months ended March 31, 1997, (see
Consolidated Statements of Income) are attributable to the acquisition and
operation of the twenty-three real property investments purchased from 1988 to
1995 and interest earned on interest-bearing bank investments.
Total revenues for the three months ended March 31, 1997 increased $42,077 from
the same period in 1996. Rental revenues for the three months ended March
31, 1997 did not materially change from the same period in 1996. Interest and
other revenues increased $14,399 from the same period in 1996. The increase is
primarily due to a slight increase in interest rate.
Total expenses for the three months ended March 31, 1997 increased $35,100 from
the same period in 1996. The increase is primarily due to an increase in general
and administrative expenses. General and administrative expenses increased
$39,506 due to property operating expenses incurred.
Net income for the three months ended March 31, 1997 did not materially change
from 1996.
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings - not applicable.
ITEM 2. Changes in Securities - not applicable.
ITEM 3. Defaults under the Senior Securities - not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders - not applicable.
ITEM 5. Other Information - not applicable.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Exhibit
----------- -------
27 Financial Data Schedule
(b) Reports on form 8-K filed during the quarter ended March 31, 1997.
None.
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NET 1 L.P.
By: Lepercq Net 1 L.P.
its general partner
By: Lepercq Net 1 Inc.
its general partner
Date: By:
------------------------------ --------------------------
E. Robert Roskind
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,197,551
<SECURITIES> 0
<RECEIVABLES> 336,380
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 22,871,003
<DEPRECIATION> (2,394,535)
<TOTAL-ASSETS> 23,456,997
<CURRENT-LIABILITIES> 0
<BONDS> 3,515,310
0
0
<COMMON> 0
<OTHER-SE> 19,752,579
<TOTAL-LIABILITY-AND-EQUITY> 23,456,997
<SALES> 0
<TOTAL-REVENUES> 927,499
<CGS> 0
<TOTAL-COSTS> 98,136
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,118
<INCOME-PRETAX> 636,978
<INCOME-TAX> 0
<INCOME-CONTINUING> 636,978
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 636,978
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
